More California Community Colleges Stop Offering Federal Loans

A small but growing number of California community colleges have stopped participating in the federal loan program, cutting off these borrowing options for students out of fear that rising student loan default rates could lead to sanctions.

Some 16 colleges have stopped disbursing the loans, and at least one more school – Bakersfield College – is considering ending its participation in the program. That makes California home to more students without access to federal loans than any other state, according to data collected by the Institute for College Access and Success, an Oakland-based nonprofit.

College officials say they stopped participating in federal loans because they were worried that an increase in student loan defaults would jeopardize their ability to offer federal grants. Colleges where students default on federal loans at high rates for several years in a row stand to lose eligibility for federal grants under sanctions issued by the U.S. Department of Education.

But some advocacy groups and student loan experts say the colleges are exaggerating the risk of sanctions and are unnecessarily pushing students toward more expensive and riskier borrowing options. They say colleges should work to improve their default rates rather than cut off federal loans for students.

“The community colleges in California are at virtually no risk to losing access to Pell grants due to default rates,” said Debbie Cochrane, research director for the Institute for College Access and Success. “Colleges often overstate the risk of being sanctioned due to default rates because they don’t understand that there are protections to avoid those sanctions.”

Sandy Baum, senior fellow at the Graduate School of Education and Human Development at George Washington University, said students who can’t borrow federal loans will use their credit cards or go to private loan markets, where interest rates are higher and the consequences of default are more severe.

“If their default rates are too high, they should figure out why and do something about that, but depriving students of access to those loans is not the best solution,” said Baum, who is also an independent higher education policy analyst. (Read more.)

Via Erica Perez, Why CTE Blog.

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193 Vocational Programs Fail ‘Gainful Employment’ Test

About 5 percent of vocational programs that are subject to the Education Department’s controversial gainful-employment rule failed to meet the regulation’s three key benchmarks that will eventually be required for them to receive federal student aid, data released by the department today show.

The graduates of 193 programs at 93 different institutions, all of them for-profit, are carrying debt-to-income ratios that are too high and have loan-repayment rates that are too low under the benchmarks the Department of Education established in the rule, issued in June 2011.

None of those programs will receive any sanctions because the data were released for informational purposes only. Full enforcement of the regulations will be phased in over the next several years. Starting in 2013, the affected vocational programs must meet at least one of three benchmarks in at least three out of four consecutive years in order to remain eligible for federal student aid.

In order to meet the first benchmark, at least 35 percent of a program’s graduates must be actively repaying their student loans. In addition, under the rules the median student-debt burden of a program’s graduates cannot exceed 12 percent of those students’ aggregate annual total income, nor 30 percent of their annual discretionary income.

The gainful-employment rule applies only to nondegree-granting vocational programs, which include 42,000 programs at public and private colleges, and roughly 13,000 programs at for-profit colleges. Many vocational programs are exempt from the regulation, however, because they have fewer than 30 student-loan borrowers. (Read more.)

Via Michael Stratford, The Chronicle of Higher Ed.

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Buying College: What Consumers Need to Know

This is an excerpt from a report by the Center for American  Progress. For more details or to download the report go to the bottom of the article.

“If only I’d known then what I know now” seems to be a common lament from college graduates these days. We hear it from students who attended for-profit institutions only to find that their skills are not marketable but their debt will haunt them for the next 30 years. But we also hear it from law school graduates who feel their institutions sold them on the dream of a $150,000 salary when all they got was $150,000 in student loan debt and a temp job reviewing documents. Students’ lack of information when making college choices costs individuals the opportunity to create a better future for themselves and it costs taxpayers when students use federal grants and loans and state subsidies to pursue overpriced or underperforming educational programs.

Better and more timely information must be part of any strategy to get more students into and through college while also addressing the problems of increasing loan defaults and students with credentials but no jobs. CAP advocates for an expanded federal role in providing information resources to college-bound students. But the federal government’s approach to providing information must fundamentally change from dumping data onto websites to targeting information to individuals, taking into account the job that information should accomplish. In broad terms, that job is helping students make better choices, but there are several ways to improve choice making. For instance, we can protect students from poor-performing programs by disclosing key data, or we can help students compare across institutions to make the best choice among them. Also, we can encourage students to choose programs that are a best fit for their learning style, aptitudes, and educational goals, or to become more conscious of college options well before they make the choice of where to enroll.

So far, the federal government approaches all of these improvements to college choice by making data available in an indiscriminate way through postings on federal websites and limited disclosures on college marketing materials. And there is very little evidence that students and families even look at this information, let alone integrate it into their choices. To ensure that information is more effective, it must be organized around the ways it can improve choice.

Download the pdf and read more.

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